It is another too big to fail syndrome. I do not see why Icelandic taxpayers should be held hostage by the Brit and Dutch governments. The banks should be do their due diligences before embarking on risky lendings.

Words...
How can it be reasonable to invest in values oszilating by several percentage units per day if not per minute? This is not investing, this is plain gambling.
The fact that such market conditions are not only tolerated but, much more than that, supported by officials including governments and regulators must mean something: they are aimed at!
Make the self-evident: enhance regulations, as suggested by several other readers. Tax accorgingly values' trading profits. Raise the burdens of borrowing in order to control short buying and selling. Stop describing gamblers as "investment specialists" and their activities as "financial industry". Internationalise accounting standards and markets' regulation and control.
Then, for a while, things should normalise.

Hold on. Wasn't this a debt generated by a private bank? Not to sound like a broken record but there is no way the state of Iceland should agree to pay this debt back. If investors want to put their money in high-risk, high-interest schemes then they have to bore the brunt of losing their money when things turn pear-shaped. If I put my money in a private savings scheme based in Burma and lost all my money, I wouldn't expect the junta to be bailing me out. The residents of Iceland are right to reject this bill

Let me recommend "jamesyar" posting. It is good and to the point.
Why are people from Iceland so irritated on Gordon Brown; is it because he acted when he need to do, so unlike politicians from Iceland? Because to stop Icesave would be to stop the companies (who would be your "friends") ref http://www.icenews.is/index.php/2009/01/09/origins-of-the-current-econom...
The Icelandic government (so does the people who elected them)has take the blame to for let this come to pass. ( For there are good points to be made comparing Iceland to a kleptocracy. And not paying your debt does not change that impression.)
For on Iceland nobody has got to jail for bringing Iceland financial meltdown.

Call me heartless, but I think most people on this board are on the wrong side of the debate when they assume that Iceland is the good guy simply because it is the weaker party (with the additional advantage of being a cuddly Nordic country).

I do not know many of the facts of the case, so I won't pass judgment.

Maybe this is a good time for Economist to reiterate its claims, that EU entry negotiations should not be tainted by a blackmail of a member country against an applicant country over trivial matters (remember Slovenia / Croatia problems?). Or is it not trivial, if it is your money/land/sea?

A few centuries ago the powerful of that day used military power (battles, sieges, etc) with the ultimate goal of plundering / looting less unfortunate folks or obtaining a tribute to be paid periodically by the oppressed. They got a lot more clever and the system now is called the "world economic order" organized mainly by bamkers. Almost nobody dies as a result of the highly sophisticated looting system but the plunder is probably much more damaging. It happens at a much grander scale, actually on a planetary scale - just consider the resulting ecological destruction by plundering the Planet at any price.

Just as in the old times the sieges / battles carried by great powers sometimes resulted in quite unpleasant surprises for them, this one (sieging / threatening) on Iceland apparently willl go awfully wrong for them.

Icelanders, pls accept my sincere congratulations for resisting the threats and the sieges and refusing to pay the demanded tributes!

Make them harvest the seeds of destruction they planted themselves. You should not suffer to make the life of any greedy bankers / depositors more sweet than they already are.

Iceland is in a terrible dead-end street. If they remain a fisheries-based economy, they may remain in the EEA, outside of the EU institutions, but partly inside the EU market. The annual income, living standard and exchange rate of the Icelandic currency, would go up and down, following the cycle of the available fish resources.

The fishing industry is a powerful lobby, and this is the scenario they are pushing for. If Iceland remains a fishing economy, lots of young Icelanders will leave for Norway and other countries to find other jobs than the hard and dangerous work as fishermen, making Iceland into a backwater. At the moment, this seems to be the most probable outcome of the present mess.

But as the bold aggressiveness of the Icelandic banks indicated, there is also another, at the moment a less likely scenario: Renegotiating the debt of the private banks, convincing the voters that EU and euro membership is a smart national strategy, take a leading role in reforming the EU fisheries policy and restarting the banking business, inside the euro currency area.

The British and Dutch blackmail of Iceland is not completely convincing. The Icelandic banks went bust in Norway too. But our financial control system took care of their customers. The same happened in the other Nordic countries, I assume. Why didn't Britain and the Netherlands have the same safety net for bank customers?

"It's kind of tiring to keep on reading the blame being put on the borrowers." Bill in VC

Fractional reserve loans are literally loans from government backed counterfeiters. Not because the money is paper or electronic bits but because it steals purchasing power from all money holders.

Here is an ethical way to do banking: Let each bank issue its own common stock as money. The money holders are then the BANK OWNERS. Any price inflation comes out of their hide not innocent bystanders forced by legal tender laws to use a common currency.

The greatest "tragedy of the commons" is a government enforced monopoly money.

It's kind of tiring to keep on reading the blame being put on the borrowers. Of course there were some irresponsible borrowers but the main fault lies with the mortgage originators. They didn't care about the credit risk of individual borrowers because of their very business models. They granted a mortgage, quickly bundled it with other garbage and then sold it to investors. Countrywide Financial, the largest of them in the USA even made money through foreclosures because they generated fees.

Ever heard of the zippy cheat sheet of JPMorgan Chase? That was meant to help people who had been rejected by the automatic (!!! what about a banker's due diligence?) mortgage application system on their first attempt to qualify in a second attempt.

The problems were created by greedy banksters not the few dishonest borrowers.

"Iceland’s educated electorate, alarmed by the financial havoc wrought by the minority who ran their country’s banks, are struggling to reconcile themselves to decades of debt repayment, high taxation and the budget cuts that are bound to come." The Economist

Debt? Fractional reserve banking steals purchasing power from all money holders as new money is created via loans. THERE IS NO MORAL DEBT to the banks or to the depositors. The depositors hoped to share in the loot via interest. They lost their bet. Tough tulips!

Hey, the UK may just be the next Iceland - a country that goes down the financial drain. A year from now there are going to be lots of soverign debts that go unpaid, Greece, Iceland, California, New York, and the United Kingdom to name just a few. England will be begging to join the Euro, and the EU will tell them to go away.

One could say this is a failure of banking and capitalism. One could also say this is a failing of democracy and regulation. It is government or governments that allowed this credit crisis to develop because they failed to spot the warning signs or took appropriate action. Regulation should have been tighter and more proactive.

Of course we could all go to communism and spend our lives queuing for bread and other staples. No, capitalism is definitely the worst system, apart from all the others.

Now of course there is a mess to clear up but there needs to be a more fundamental understanding of risk/reward and how to reap the benefits and pay the price if it goes wrong.

Don't bail out the reckless. Those that live by the sword and fail should die by the sword !!!!!!

Why should Icelanders pay for something that the Brittish and Dutch governments decided to do which was over the normal savings protection?
Icesave was not a brittish or dutch thing, it was Icelandic, if someone saves money in Iceland they fall under the Icelanding laws. If then the UK or Netherlands want to pay money to people who lost their money being stupid (high interest=high risk) fair enough but why should the icelandic people pay the bill?

As a Dutchman I should really be calling to get "our money" back, but I feel I can't. For many decades The Netherlands have been handing over billions of euros per year to corrupt and undeserving Third World countries who simply burned it. But now our government pushes to bring the oldest democracy in the world to its knees. A country that is very peaceful and has very friendly people moreover.
And for a debt that is only partly to blame on the Icelandic people.

We should be wiser about this:
- The UK and The Netherlands should take on a big piece of the burden
- interest rates for the remainder should be at bottom-level

I do hope the British and Dutch governments will find it in their socialist hearts to save the Icelandic people from a crippling debt.

Earth calling the British establishment: There's a lot of sympathy in "the outside world" for Icelanders refusal to cow in to British and Dutch bullying.

In case you didn't notice, nobody ever forced anybody to put their money into the accounts of - evidently dodgy - Icelandic banks. Greedy, stupid savers all did it on their own devices. British and Dutch taxpayers are free to pick up the bill themselves, should they be stupid enough.